Redundancy.

Before outlining the correct redundancy process, employers and employees alike need to understand what redundancy means.

Redundancy is when an employee is dismissed because the company no longer needs anyone to do their job. There are various motives behind companies making redundancies.

Some of the primary examples are because your company is:

• Closing down or changing its location
• Changing the way it works, for instance, relying more on machinery
• Changing the service/product it offers.

When an employer makes an employee redundant, the employer must demonstrate that the job will no longer exist.

Redundancy pay will depend on the employee’s annual salary (before tax) and the number of years worked at the company.

If an employee has been working for the company for at least two years, then for each full year, the company owes:

Statutory redundancy pay comes with terms and conditions, which include:

• Whilst working, if the employee turns 22 or 41, the higher rates will only apply for the full years they were aged over 22 or 41.
• The maximum weekly redundancy pay is capped at £700, regardless of whether the employee’s salary was more. 
• Employees can only get redundancy pay for a maximum of 20 years of work. For example, if they’ve had the job for 28 years, you’ll only get 20 years’ worth of pay.

Example:

Chris (aged 25) has worked at an accountancy firm for five years, earning £400 a week. Unfortunately, Chris has just been made redundant, and his pay is as follows:

• Half a week’s pay from when he was under the age of 22 = £400
• Three week’s pay for the three years he worked over the age of 22 = £1,200

Overall, Chris will receive a statutory payment of £1,600. However, this payment excludes any contractual pay.

Redundancy tax is payable after the first £30,000. This figure may sound unlikely, but other factors are calculated in redundancy pay which include:

• Contractual notice pay (any form of additional amounts of money that the employment contract says you can get on top of your statutory amount).
• Non-cash benefits. For example, gifting a company laptop, phone or car. Any assets which become a gift will be given a cash value and added to the total redundancy pay.

Tax is applicable on any portion of redundancy pay above the value of £30,000. The tax rate for any value above £30,000 is the same as the other salary.

Holiday pay and Pay In Leiu Of Notice will be treated as other payments rather than redundancy pay as they’re both paying for work rather than compensation for job loss.

When it comes to how redundancy works, there are five stages employers must take to ensure the redundancy is fair. These five stages are as follows:

1. Explore whether or not redundancies can be avoided
2. Identify the employees who are to be made redundant
3. Hold redundancy consultations
4. Give staff notice
5. Deciding on the redundancy pay

If an employer doesn’t carry out the correct processes, they could end up with an employment claim for unfair or wrongful dismissal.

For more information on how redundancy works, please contact our solicitors directly on 0203 007 5500.

If an employer hasn’t completed the correct redundancy procedure, an employee can contest the redundancy.

Dealing with redundancy-related employment claims is a complex process that requires the help of a specialist employment law solicitor.

If you need help with a claim, you can contact our solicitors directly on 0203 007 5500.

It is illegal to make an employee redundant because they are on maternity leave or sick leave.

But, you can make employees redundant for fair and valid reasons if they are on maternity leave or sick leave.

For example, Frank has been on long-term sick leave for 4 weeks from his job as a grocery picker at a warehouse.  His employer has followed all of the correct procedures for his sick leave. But they are now making all grocery pickers redundant because they have implemented the use of machinery. They followed all correct redundancy procedures. 

In this case, the employer is removing that role from the company as a whole and has not made him redundant because of his sick leave.

Navigating redundancies for employees on maternity leave or sick leave can be very complex, so it’s important to consult a solicitor early on in the process to ensure all processes are carried out legally and fairly.

If you need help clarifying whether a redundancy is legal, you can contact our solicitors directly on 0203 007 5500.